SDT: Solicitor did not have a tendency towards non-compliance
A solicitor who acted recklessly and with “manifest incompetence” by becoming involved in a Ponzi scheme has avoided being struck off in part because of the delay in the Solicitors Regulation Authority (SRA) prosecuting him.
Colin Peter Dixon was instead suspended for six months and conditions placed on his return to practice, while the experienced paralegal who worked with him, Justine Leanne Wardle, has been banned from working in the profession without SRA permission.
Allegations that they acted dishonestly or without integrity were dismissed, however. The Solicitors Disciplinary Tribunal (SDT) found Mr Dixon to be “predominantly a man of truth, but noted his overall demeanour to be cautious, defensive and that he was unable to accept the bald facts in respect of certain matters”.
Mr Dixon, who qualified in 1993, set up Dixon Law in Leeds in 2005. The firm closed in 2014 as a result of the events which led to the SDT hearing, which increased the firm’s professional indemnity insurance premiums to an unsustainable level.
At the time of the tribunal in May, he was practising as a commercial property consultant at Needle Partners in Leeds.
The work, which started in early 2012, was brought in to the firm by Ms Wardle. The scheme involved the purchase of low-value properties which generally required renovation before they were marketed for sale to first-time buyers.
It sought £20,000 from investors, who could choose to exit after 10 weeks, at which stage they would be reimbursed the money as well as an additional £5,000 early exit fee.
However, it transpired that this payout was being funded by new investors who entered the scheme, “which was the classic trademark of a ‘Ponzi’ or dubious scheme”, the tribunal ruling noted.
The scheme collapsed in early 2014 when a mortgage lender called in all loans and exercised its power of sale over the affected properties, leading to a number of investors losing their promised returns. However, no claims were made against Dixon Law.
The SRA’s investigation showed that from March to October 2012, around £3m was invested in the scheme, of which £652,000 was repaid to investors.
The regulator argued that Mr Dixon should have recognised several ‘red flags’ about the scheme, including unrealistically high returns, the absence of a commercial rationale, “dubious revisions” – such as dropping the £5,000 exit fee in return for a 50% share of the net profits – and the limited legal work done for the investors.
Also, one of the directors of company behind the scheme was featured on the BBC’s Watchdog Rogue Traders programme, although Mr Dixon said he was reassured that this was due to the actions of now-dismissed employees.
However, the SDT found that Mr Dixon had made efforts to address several initial concerns he had about the scheme – such as by changing the engagement letter to tell investors to seek independent legal advice – and that he “did not present as a solicitor with a tendency towards non-compliance”.
Though he admitted rule breaches in relation to various allegations – like being involved in a dubious investment scheme, providing inadequate advice to investors and acting where there was a conflict of interest – the SDT said it could not be satisfied that he or Ms Wardle appreciated the scheme was dubious and so it could not find that they had lacked integrity.
Similarly, it did not find that they had been dishonest, finding Mr Dixon “genuinely believed that the scheme was credible by virtue of the fact that investors’ interest in a tangible property was registered by way of [a Land Registry] notice” – an approach he had recommended.
It also noted that the SRA had initially expressed its concerns about the scheme in August 2012, following which he made certain changes to it, then again in June 2013 – seven months after it had last contacted Mr Dixon – and did not raise allegations of dishonesty until 2017.
However, the tribunal did find that Mr Dixon had acted recklessly from June 2013 because he failed to deal adequately with the further concerns expressed by the SRA.
He made “technical adjustments” to the scheme as a result, “and whilst [he] may have thought that it had solved the issues raised, it did not militate against the risk nor did it go remotely far enough to do so”.
In addition, he had been “manifestly incompetent”. The tribunal found Mr Dixon “entered into the new field of residential conveyancing somewhat naively and having placed too much reliance on the abilities of [Ms Wardle] who was not a solicitor”.
It said: “His lack of due diligence allowed the recycling of funds between ‘new’ and ‘old’ investors, mismanagement of client monies and failure to take heed of the Rogue Traders programme all contributed to the incompetent manner in which he continued to act in the scheme.”
The efforts Mr Dixon took to address the concerns raised and risks to which he was alerted were not enough to demonstrate competence.
In most instances, the SDT said that Ms Wardle’s reliance on Mr Dixon for supervision and instructions meant that her culpability or otherwise was the same.
In relation to incompetence, it highlighted how she had personally vouched for the scheme to a potential investor, which was “an example of her acting beyond the scope of her expertise”.
Case law suggested that the start point for a finding of manifest incompetence was a strike-off, but the SDT identified three factors which mitigated against that: the finding related solely to the scheme and not across Mr Dixon’s wider practice; his unblemished record; and “the significant delay” on the part of the SRA in bringing the proceedings.
He said he heard nothing from the SRA in relation to its investigation between June 2013 and April 2015, and in August 2015 was notified that it intended to prosecute him. He complained about the delay as he thought the matter had been resolved, and in November 2015 the SRA “acknowledged the poor service that had been provided”.
There was then a further delay as a result of a complaint by one of the investors, whose evidence collapsed during the SDT hearing.
Once he serves his six-month suspension – which ends on 22 November – Mr Dixon will be unable to practice as a sole practitioner or have a compliance officer role at a firm.
He was also ordered to pay costs of £59,000, with Ms Wardle paying costs of £2,500.
Leave a Comment